The study examines the extent to which heavy and AUD drinkers avoid the effects of alcohol tax and price increases by substituting to lower quality-lower priced alcoholic beverages and the effect that such substitution has on alcohol price elasticity estimates and alcohol tax policy. Recent data from the 2000 National Alcohol Survey (NAS) and other sources indicate that heavy drinkers'substitution to lower quality, lower priced beverages is significant and should not be ignored in evaluating the impact of taxation and other price changes on alcohol consumption. Previous studies using individual-level data treated price as outside the control of the consumer (i.e., exogenous). The proposed study specifically investigates the possibility that price is endogenous since beverage quality and drinking context are both self-chosen. This is a previously uninvestigated aspect of alcohol price effects. We link detailed Uniform Price Code (UPC) barcode scanner alcohol price data to detailed nationally representative secondary alcohol consumption data from the 2000/2005 National Alcohol Surveys (NAS) and the 2004-2005 NIAAA National Epidemiologic Survey of Alcohol and Related Conditions (NESARC II). The 2000/2005 NAS Surveys, which contain detailed information on quality substitution and alcohol expenditures, are used to quantify and bound substitution between and across beverage types and to examine context effects by beverage and drinker type overall and within race, gender and age groups. This information is used to link a range of market prices to the larger NAS and NESARC surveys based on individual alcohol preferences and other characteristics for use in alcohol demand equations. Alcohol demand equations include price, individual characteristics, market characteristics, and measures of the regulatory environment. Specification tests are employed to assure theoretically and empirically valid models of substitution. Substitution effects on price elasticities are subjected to rigorous sensitivity analyses derived from clearly specified theoretical and empirically-determined parameter estimates. We assess the impact of the error in previously used measures of price and of quality substitution and drinking context on "naive" elasticity point estimates also obtained from this study. Implications for alcohol tax policy by beverage and drinker type, race, gender and age group are assessed. PUBLIC HEALTH RELEVANCE: The study examines the extent to which heavy and AUD drinkers avoid the effects of alcohol tax and price increases by substituting to lower quality-lower priced alcoholic beverages and the effect that such substitution has on alcohol price elasticity estimates and alcohol tax policy. Data from the 2002/2005 National Alcohol Surveys (NAS) and the 2004-2005 NIAAA National Epidemiologic Survey of Alcohol and Related Conditions (NESARC II) are used. Implications for alcohol tax policy by beverage and drinker type, race, gender and age group are assessed.